Reduce Your Company’s Tax Bill Using Personal Sole Trader Losses


If a business makes a loss, the Taxman allows you to deduct it from your other income and so reduce your tax bill, with conditions.

If your business ceases and you haven’t been able to get tax relief for all your losses, he won’t let you carry them forward to another business. But there’s a little known exception to the rule – Section 86 of the Income Taxes Act 2007

Before forming a limited company, you might have started off as a sole trader or partnership. When trade improved you formed a limited company but were left with some losses from the previous business that you couldn’t get tax relief for.

Your accountant may have told you it was tough luck; but actually as the company is carrying on the same trade, section 86 allows you to transfer the loss from the unincorporated business against income you take from the limited company.


Brian started a consultancy in 2007.

It had high set-up costs and initially trade was slow. This meant that the business made losses of £40,000 during its first two years.

But trading improved considerably and Brian’s accountant recommended that he incorporate the business. Brian transferred the trade to a limited company.

In the tax year 2012/13 Brian paid himself a salary of £40,000 to use up his losses from the old business. He would normally pay tax on this of around £6,500; instead, he’ll pay no tax at all.

If the company can’t afford to pay him all the salary at once, he can leave it in his director’s loan account and draw down on the tax-free funds whenever he wants to.

If you would like further information regarding the above please contact us >>

By Tony Czypionka | Accountant and Tax Adviser

Tony is the Accountant and Tax Adviser at Mantle Financial Planning Read more >>

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